News

NAMA Challenged!

By Alice Lanigan, Solicitor, Litigation Department

The National Asset Management Agency

The National Asset Management Agency (NAMA) was established in 2009 to acquire good and bad loans from participating financial institutions. As part of its work, NAMA attempted to acquire loans held by a number of companies, bodies corporate, and/or partnerships incorporated in the State, in the UK and in France in which the property developer, Patrick McKillen has a 50% or 100% beneficial interest. Fifteen corporate entities and Mr. McKillen took judicial review proceedings against the NAMA decision.

Judicial Review

The judicial review proceedings were heard by way of “telescoped hearing”. Normally, a party seeking to judicially review a decision of a particular body seeks leave from the court to have the decision judicially reviewed, without notice to the other party. If leave is granted, the case is then put into a list to hear the substantive issues at a later date, and possibly by a different judge. The “telescoped” approach, which has been favoured in the Commercial Court, allows the court to consider the leave application inter partes, and if granted, the court can then consider the substantive arguments immediately as part of the same hearing. It is certainly a more efficient way of dealing with such cases and it is likely that this approach will be adopted in the future.

Arguments advanced by Mr. McKillen

The following arguments were made on behalf of Mr. Killen to the Divisional High Court comprised of Kearns P, Clarke J, and Kelly J:- • Mr. McKillen had an entitlement to be heard by NAMA before a decision would be made to acquire the loans • NAMA did not take “appropriate considerations” into account when making its decision, such as the fact that his loans were actually performing and that only a quarter of his assets were in this jurisdiction • The decision to acquire the loans was made before NAMA was established • European rules on the provision of state aid meant that NAMA could only acquire loans that were impaired • As a fallback position, if the court determined that the provisions of the National Asset Management Agency Act 2009 did not entitle Mr. McKillen to be heard, then the agency itself was unconstitutional.

High Court Decision

The court ruled against Mr. McKillen on the following basis:- • His constitutional rights were not interfered with, or were interfered with in such a minor way that it would not require him to be entitled to a hearing. • NAMA had sole discretion to acquire eligible loans and the argument in relation to appropriate considerations was not deemed to meet the “substantial issue” test required for leave to be granted. • The subsequent acts of NAMA gave legal effect to its decision, prior to its establishment, to acquire the loans • NAMA did not breach rules in relation to state aid. • The NAMA Act “meets the proportionality test” and is therefore constitutional.

Supreme Court Appeal

Mr. McKillen promptly appealed the High Court decision and in February 2011, the Supreme Court found in his favour on one specific ground, namely that the decision to acquire the loans in question was made before the proper establishment of NAMA and that none of NAMA’s subsequent actions rendered the decision as having legal effect. The Court subsequently ruled on the outstanding issues on the 12th April 2011, stating that Mr. McKillen had a right to make representations to NAMA prior to it acquiring his loans, and therefore section 84 of the NAMA act permitting it to acquire eligible bank assets must be construed in accordance with the principles of constitutional justice. The Court dismissed the claim that part of the NAMA Act was unconstitutional.

Supreme Court decides that the decision to acquire the loans in question was made before the proper establishment of NAMA and that none of NAMA’s subsequent actions rendered the decision as having legal effect. Court subsequently decides that the decision to acquire eligible bank assets by NAMA must be construed with principles of constitutional justice, however, the NAMA Act itself in not unconstitutional.